17 CFR 270.2a-7

§ 270.2a–6

17 CFR Ch. II (4–1–07 Edition)

net asset value between calculations
made as of the close of the New York
Stock Exchange on the preceding business day and the current business day
may be estimated so as to reflect any
change in current net asset value since
the closing calculation on the preceding business day.
(Secs. 7, 19(a), 48 Stat. 78, 85, 908, 15 U.S.C.
77g, 77s(a); secs. 12, 13, 15(d), 23(a), 48 Stat.
892, 894, 895, 901; secs. 3, 8, 49 Stat. 1377, 1379,
secs. 3, 4, 78 Stat. 569, 570, secs. 1, 2, 82 Stat.
454, 15 U.S.C. 78l, 78m, 78o(d), 78w(a); secs. 8,
22, 30, 31(c), 38(a), 54 Stat. 803, 823, 836, 838,
841, 15 U.S.C. 80a–8, 80a–22, 80a–29, 80a–30(c))
[29 FR 19101, Dec. 30, 1964, as amended at 35
FR 314, Jan. 8, 1970; 47 FR 56844, Dec. 21, 1982]

§ 270.2a–6 Certain transactions
deemed assignments.

not

A transaction which does not result
in a change of actual control or management of the investment adviser to,
or principal underwriter of, an investment company is not an assignment for
purposes of section 15(a)(4) or section
15(b)(2) of the act, respectively.
(Secs. 6(c) and 38(a) (15 U.S.C. 80a–6(c) and
80a–37(a)))
[45 FR 1861, Jan. 9, 1980]

§ 270.2a–7

Money market funds.

(a) Definitions. (1) Acquisition (or Acquire) means any purchase or subsequent rollover (but does not include
the failure to exercise a Demand Feature).
(2) Amortized Cost Method of valuation
means the method of calculating an investment company’s net asset value
whereby portfolio securities are valued
at the fund’s Acquisition cost as adjusted for amortization of premium or
accretion of discount rather than at
their value based on current market
factors.
(3) Asset Backed Security means a
fixed income security (other than a
Government security) issued by a Special Purpose Entity (as defined in this
paragraph), substantially all of the assets which consist of Qualifying Assets
(as defined in this paragraph). Special
Purpose Entity means a trust, corporation, partnership or other entity organized for the sole purpose of issuing securities that entitle their holders to receive payments that depend primarily

on the cash flow from Qualifying Assets, but does not include a registered
investment company. Qualifying Assets
means financial assets, either fixed or
revolving, that by their terms convert
into cash within a finite time period,
plus any rights or other assets designed
to assure the servicing or timely distribution of proceeds to security holders.
(4) Business Day means any day, other
than Saturday, Sunday, or any customary business holiday.
(5)
Collateralized
Fully
means
‘‘Collateralized Fully’’ as defined in
§ 270.5b–3(c)(1).
(6) Conditional Demand Feature means
a Demand Feature that is not an Unconditional Demand Feature. A Conditional Demand Feature is not a Guarantee.
(7) Conduit Security means a security
issued by a Municipal Issuer (as defined
in this paragraph) involving an arrangement or agreement entered into,
directly or indirectly, with a person
other than a Municipal Issuer, which
arrangement or agreement provides for
or secures repayment of the security.
Municipal Issuer means a state or territory of the United States (including
the District of Columbia), or any political subdivision or public instrumentality of a state or territory of the
United States. A Conduit Security does
not include a security that is:
(i) Fully and unconditionally guaranteed by a Municipal Issuer; or
(ii) Payable from the general revenues of the Municipal Issuer or other
Municipal Issuers (other than those
revenues derived from an agreement or
arrangement with a person who is not
a Municipal Issuer that provides for or
secures repayment of the security
issued by the Municipal Issuer); or
(iii) Related to a project owned and
operated by a Municipal Issuer; or
(iv) Related to a facility leased to
and under the control of an industrial
or commercial enterprise that is part
of a public project which, as a whole, is
owned and under the control of a Municipal Issuer.
(8) Demand Feature means:
(i) A feature permitting the holder of
a security to sell the security at an exercise price equal to the approximate

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Securities and Exchange Commission

§ 270.2a–7

amortized cost of the security plus accrued interest, if any, at the time of
exercise. A Demand Feature must be
exercisable either:
(A) At any time on no more than 30
calendar days’ notice; or
(B) At specified intervals not exceeding 397 calendar days and upon no more
than 30 calendar days’ notice; or
(ii) A feature permitting the holder
of an Asset Backed Security unconditionally to receive principal and interest within 397 calendar days of making
demand.
(9) Demand Feature Issued By A NonControlled Person means a Demand Feature issued by:
(i) A person that, directly or indirectly, does not control, and is not controlled by or under common control
with the issuer of the security subject
to the Demand Feature (control means
‘‘control’’ as defined in section 2(a)(9)
of the Act (15 U.S.C. 80a–2(a)(9)); or
(ii) A sponsor of a Special Purpose
Entity with respect to an Asset Backed
Security.
(10) Eligible Security means:
(i) A Rated Security with a remaining maturity of 397 calendar days or
less that has received a rating from the
Requisite NRSROs in one of the two
highest short-term rating categories
(within which there may be sub-categories or gradations indicating relative standing); or
(ii) An Unrated Security that is of
comparable quality to a security meeting the requirements for a Rated Security in paragraph (a)(10)(i) of this section, as determined by the money market fund’s board of directors; Provided,
however, that:
(A) A security that at the time of
issuance had a remaining maturity of
more than 397 calendar days but that
has a remaining maturity of 397 calendar days or less and that is an
Unrated Security is not an Eligible Security if the security has received a
long-term rating from any NRSRO that
is not within the NRSRO’s three highest long-term ratings categories (within which there may be sub-categories
or gradations indicating relative standing), unless the security has received a
long-term rating from the Requisite
NRSROs in one of the three highest
rating categories;

(B) An Asset Backed Security (other
than an Asset Backed Security substantially all of whose Qualifying Assets consist of obligations of one or
more Municipal Issuers, as that term is
defined in paragraph (a)(7) of this section) shall not be an Eligible Security
unless it has received a rating from an
NRSRO.
(iii) In addition, in the case of a security that is subject to a Demand Feature or Guarantee:
(A) The Guarantee has received a rating from an NRSRO or the Guarantee
is issued by a guarantor that has received a rating from an NRSRO with
respect to a class of debt obligations
(or any debt obligation within that
class) that is comparable in priority
and security to the Guarantee, unless:
(1) The Guarantee is issued by a person that, directly or indirectly, controls, is controlled by or is under common control with the issuer of the security subject to the Guarantee (other
than a sponsor of a Special Purpose Entity with respect to an Asset Backed
Security);
(2) The security subject to the Guarantee is a repurchase agreement that is
Collateralized Fully; or
(3) The Guarantee is itself a Government Security; and
(B) The issuer of the Demand Feature
or Guarantee, or another institution,
has undertaken promptly to notify the
holder of the security in the event the
Demand Feature or Guarantee is substituted with another Demand Feature
or Guarantee (if such substitution is
permissible under the terms of the Demand Feature or Guarantee).
(11) Event of Insolvency means ‘‘Event
of Insolvency’’ as defined in § 270.5b–
3(c)(2).
(12) First Tier Security means any Eligible Security that:
(i) Is a Rated Security that has received a short-term rating from the
Requisite NRSROs in the highest
short-term rating category for debt obligations (within which there may be
sub-categories or gradations indicating
relative standing); or

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17 CFR Ch. II (4–1–07 Edition)

(ii) Is an Unrated Security that is of
comparable quality to a security meeting the requirements for a Rated Security in paragraph (a)(12)(i) of this section, as determined by the fund’s board
of directors; or
(iii) Is a security issued by a registered investment company that is a
money market fund; or
(iv) Is a Government Security.
(13) Floating Rate Security means a security the terms of which provide for
the adjustment of its interest rate
whenever a specified interest rate
changes and that, at any time until the
final maturity of the instrument or the
period remaining until the principal
amount can be recovered through demand, can reasonably be expected to
have a market value that approximates
its amortized cost.
(14) Government Security means any
‘‘Government security’’ as defined in
section 2(a)(16) of the Act (15 U.S.C.
80a–2(a)(16)).
(15) Guarantee means an unconditional obligation of a person other than
the issuer of the security to undertake
to pay, upon presentment by the holder
of the Guarantee (if required), the principal amount of the underlying security plus accrued interest when due or
upon default, or, in the case of an Unconditional Demand Feature, an obligation that entitles the holder to receive upon exercise the approximate
amortized cost of the underlying security or securities, plus accrued interest, if any. A Guarantee includes a letter of credit, financial guaranty (bond)
insurance, and an Unconditional Demand Feature (other than an Unconditional Demand Feature provided by the
issuer of the security).
(16) Guarantee Issued By A Non-Controlled Person means a Guarantee issued
by:
(i) A person that, directly or indirectly, does not control, and is not controlled by or under common control
with the issuer of the security subject
to the Guarantee (control means ‘‘control’’ as defined in section 2(a)(9) of the
Act (15 U.S.C. 80a–2(a)(9)); or
(ii) A sponsor of a Special Purpose
Entity with respect to an Asset Backed
Security.
(17) NRSRO means any nationally
recognized statistical rating organiza-

tion, as that term is used in paragraphs
(c)(2)(vi)(E), (F) and (H) of § 240.15c3–1 of
this Chapter, that is not an ‘‘affiliated
person,’’ as defined in section 2(a)(3)(C)
of the Act (15 U.S.C. 80a–2(a)(3)(C)), of
the issuer of, or any insurer or provider
of credit support for, the security.
(18) Penny-Rounding Method of pricing means the method of computing an
investment company’s price per share
for purposes of distribution, redemption and repurchase whereby the current net asset value per share is rounded to the nearest one percent.
(19) Rated Security means a security
that meets the requirements of paragraphs (a)(19)(i) or (ii) of this section,
in each case subject to paragraph
(a)(19)(iii) of this section:
(i) The security has received a shortterm rating from an NRSRO, or has
been issued by an issuer that has received a short-term rating from an
NRSRO with respect to a class of debt
obligations (or any debt obligation
within that class) that is comparable
in priority and security with the security; or
(ii) The security is subject to a Guarantee that has received a short-term
rating from an NRSRO, or a Guarantee
issued by a guarantor that has received
a short-term rating from an NRSRO
with respect to a class of debt obligations (or any debt obligation within
that class) that is comparable in priority and security with the Guarantee;
but
(iii) A security is not a Rated Security if it is subject to an external credit support agreement (including an arrangement by which the security has
become a Refunded Security) that was
not in effect when the security was assigned its rating, unless the security
has received a short-term rating reflecting the existence of the credit support agreement as provided in paragraph (a)(19)(i) of this section, or the
credit support agreement with respect
to the security has received a shortterm rating as provided in paragraph
(a)(19)(ii) of this section.
(20) Refunded Security means ‘‘Refunded Security’’ as defined in § 270.5b–
3(c)(4).
(21) Requisite NRSROs means:

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(i) Any two NRSROs that have issued
a rating with respect to a security or
class of debt obligations of an issuer; or
(ii) If only one NRSRO has issued a
rating with respect to such security or
class of debt obligations of an issuer at
the time the fund acquires the security, that NRSRO.
(22) Second Tier Security means any
Eligible Security that is not a First
Tier Security. Second Tier Conduit Security means any Conduit Security that
is an Eligible Security that is not a
First Tier Security.
(23) Single State Fund means a Tax
Exempt Fund that holds itself out as
seeking to maximize the amount of its
distributed income that is exempt from
the income taxes or other taxes on investments of a particular state and,
where applicable, subdivisions thereof.
(24) Tax Exempt Fund means any
money market fund that holds itself
out as distributing income exempt
from regular federal income tax.
(25) Total Assets means, with respect
to a money market fund using the Amortized Cost Method, the total amortized cost of its assets and, with respect to any other money market fund,
the total market-based value of its assets.
(26) Unconditional Demand Feature
means a Demand Feature that by its
terms would be readily exercisable in
the event of a default in payment of
principal or interest on the underlying
security or securities.
(27) United States Dollar-Denominated
means, with reference to a security,
that all principal and interest payments on such security are payable to
security holders in United States dollars under all circumstances and that
the interest rate of, the principal
amount to be repaid, and the timing of
payments related to such security do
not vary or float with the value of a
foreign currency, the rate of interest
payable on foreign currency borrowings, or with any other interest
rate or index expressed in a currency
other than United States dollars.
(28) Unrated Security means a security
that is not a Rated Security.
(29) Variable Rate Security means a security the terms of which provide for
the adjustment of its interest rate on
set dates (such as the last day of a

month or calendar quarter) and that,
upon each adjustment until the final
maturity of the instrument or the period remaining until the principal
amount can be recovered through demand, can reasonably be expected to
have a market value that approximates
its amortized cost.
(b) Holding Out and Use of Names and
Titles. (1) It shall be an untrue statement of material fact within the meaning of section 34(b) of the Act (15 U.S.C.
80a–33(b)) for a registered investment
company, in any registration statement, application, report, account,
record, or other document filed or
transmitted pursuant to the Act, including any advertisement, pamphlet,
circular, form letter, or other sales literature addressed to or intended for
distribution to prospective investors
that is required to be filed with the
Commission by section 24(b) of the Act
(15 U.S.C. 80a–24(b)), to hold itself out
to investors as a money market fund or
the equivalent of a money market
fund, unless such registered investment
company meets the conditions of paragraphs (c)(2), (c)(3) and (c)(4) of this
section.
(2) It shall constitute the use of a
materially deceptive or misleading
name or title within the meaning of
section 35(d) of the Act (15 U.S.C. 80a–
34(d)) for a registered investment company to adopt the term ‘‘money market’’ as part of its name or title or the
name or title of any redeemable securities of which it is the issuer, or to
adopt a name that suggests that it is a
money market fund or the equivalent
of a money market fund, unless such
registered investment company meets
the conditions of paragraphs (c)(2),
(c)(3), and (c)(4) of this section.
(3) For purposes of this paragraph, a
name that suggests that a registered
investment company is a money market fund or the equivalent thereof shall
include one that uses such terms as
‘‘cash,’’ ‘‘liquid,’’ ‘‘money,’’ ‘‘ready assets’’ or similar terms.
(c) Share Price Calculations. The current price per share, for purposes of
distribution, redemption and repurchase, of any redeemable security
issued by any registered investment
company (‘‘money market fund’’ or

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§ 270.2a–7

17 CFR Ch. II (4–1–07 Edition)

‘‘fund’’), notwithstanding the requirements of section 2(a)(41) of the Act (15
U.S.C. 80a–2(a)(41)) and of §§ 270.2a–4 and
270.22c–1 thereunder, may be computed
by use of the Amortized Cost Method
or the Penny-Rounding Method; Provided, however, that:
(1) Board Findings. The board of directors of the money market fund shall
determine, in good faith, that it is in
the best interests of the fund and its
shareholders to maintain a stable net
asset value per share or stable price per
share, by virtue of either the Amortized Cost Method or the Penny-Rounding Method, and that the money market fund will continue to use such
method only so long as the board of directors believes that it fairly reflects
the market-based net asset value per
share.
(2) Portfolio Maturity. The money
market fund shall maintain a dollarweighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset value per
share or price per share; Provided, however, that the money market fund will
not:
(i) Except as provided in paragraph
(c)(2)(ii) of this section, Acquire any instrument with a remaining maturity of
greater than 397 calendar days; or
(ii) In the case of a money market
fund not using the Amortized Cost
Method, Acquire a Government Security with a remaining maturity of
greater than 762 calendar days; or
(iii) Maintain a dollar-weighted average portfolio maturity that exceeds
ninety days.
(3) Portfolio Quality—i) General. The
money market fund shall limit its
portfolio investments to those United
States Dollar-Denominated securities
that the fund’s board of directors determines present minimal credit risks
(which determination must be based on
factors pertaining to credit quality in
addition to any rating assigned to such
securities by an NRSRO) and that are
at the time of Acquisition Eligible Securities.
(ii) Second Tier Securities. Immediately after the Acquisition of any
Second Tier Security:
(A) Taxable Funds. A money market
fund that is not a Tax Exempt Fund
shall not have invested more than five

percent of its Total Assets in securities
that are Second Tier Securities; and
(B) Tax Exempt Funds. A money market fund that is a Tax Exempt Fund
shall not have invested more than five
percent of its Total Assets in Conduit
Securities that are Second Tier Conduit Securities.
(iii) Securities Subject to Guarantees. A
security that is subject to a Guarantee
may be determined to be an Eligible
Security or a First Tier Security based
solely on whether the Guarantee is an
Eligible Security or First Tier Security, as the case may be.
(iv) Securities Subject to Conditional
Demand Features. A security that is
subject to a Conditional Demand Feature (‘‘Underlying Security’’) may be
determined to be an Eligible Security
or a First Tier Security only if:
(A) The Conditional Demand Feature
is an Eligible Security or First Tier Security, as the case may be;
(B) At the time of the Acquisition of
the Underlying Security, the money
market fund’s board of directors has
determined that there is minimal risk
that the circumstances that would result in the Conditional Demand Feature not being exercisable will occur;
and
(1) The conditions limiting exercise
either can be monitored readily by the
fund, or relate to the taxability, under
federal, state or local law, of the interest payments on the security; or
(2) The terms of the Conditional Demand Feature require that the fund
will receive notice of the occurrence of
the condition and the opportunity to
exercise the Demand Feature in accordance with its terms; and
(C) The Underlying Security or any
Guarantee of such security (or the debt
securities of the issuer of the Underlying Security or Guarantee that are
comparable in priority and security
with the Underlying Security or Guarantee) has received either a short-term
rating or a long-term rating, as the
case may be, from the Requisite
NRSROs within the NRSROs’ two highest short-term or long-term rating categories (within which there may be
sub-categories or gradations indicating
relative standing) or, if unrated, is determined to be of comparable quality
by the money market fund’s board of

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directors to a security that has received a rating from the Requisite
NRSROs within the NRSROs’ two highest short-term or long-term rating categories, as the case may be.
(4) Portfolio Diversification—(i) Issuer
Diversification. The money market fund
shall be diversified with respect to
issuers of securities Acquired by the
fund as provided in paragraphs (c)(4)(i)
and (c)(4)(ii) of this section, other than
with respect to Government Securities
and securities subject to a Guarantee
Issued By A Non-Controlled Person.
(A) Taxable and National Funds. Immediately after the Acquisition of any
security, a money market fund other
than a Single State Fund shall not
have invested more than five percent of
its Total Assets in securities issued by
the issuer of the security; Provided,
however, that such a fund may invest
up to twenty-five percent of its Total
Assets in the First Tier Securities of a
single issuer for a period of up to three
Business Days after the Acquisition
thereof; Provided, further, that the fund
may not invest in the securities of
more than one issuer in accordance
with the foregoing proviso in this paragraph at any time.
(B) Single State Funds. With respect
to seventy-five percent of its Total Assets, immediately after the Acquisition
of any security, a Single State Fund
shall not have invested more than five
percent of its Total Assets in securities
issued by the issuer of the security;
Provided, however, that a Single State
Fund shall not invest more than five
percent of its Total Assets in securities
issued by the issuer of the security unless the securities are First Tier Securities.
(C) Second Tier Securities—(1) Taxable
Funds. Immediately after the Acquisition of any Second Tier Security, a
money market fund that is not a Tax
Exempt Fund shall not have invested
more than the greater of one percent of
its Total Assets or one million dollars
in securities issued by that issuer that
are Second Tier Securities.
(2) Tax Exempt Funds. Immediately
after the Acquisition of any Second
Tier Conduit Security, a money market fund that is a Tax Exempt Fund
shall not have invested more than the
greater of one percent of its Total As-

sets or one million dollars in securities
issued by that issuer that are Second
Tier Conduit Securities.
(ii) Issuer Diversification Calculations.
For purposes of making calculations
under paragraph (c)(4)(i) of this section:
(A) Repurchase Agreements. The Acquisition of a repurchase agreement
may be deemed to be an Acquisition of
the underlying securities, provided the
obligation of the seller to repurchase
the securities from the money market
fund is Collateralized Fully.
(B) Refunded Securities. The Acquisition of a Refunded Security shall be
deemed to be an Acquisition of the
escrowed Government Securities.
(C) Conduit Securities. A Conduit Security shall be deemed to be issued by
the person (other than the Municipal
Issuer) ultimately responsible for payments of interest and principal on the
security.
(D) Asset Backed Securities—(1) General. An Asset Backed Security Acquired by a fund (‘‘Primary ABS’’)
shall be deemed to be issued by the
Special Purpose Entity that issued the
Asset Backed Security, Provided, however:
(i) Holdings of Primary ABS. Any person whose obligations constitute ten
percent or more of the principal
amount of the Qualifying Assets of the
Primary ABS (‘‘Ten Percent Obligor’’)
shall be deemed to be an issuer of the
portion of the Primary ABS such obligations represent; and
(ii) Holdings of Secondary ABS. If a
Ten Percent Obligor of a Primary ABS
is itself a Special Purpose Entity
issuing Asset Backed Securities (‘‘Secondary ABS’’), any Ten Percent Obligor of such Secondary ABS also shall
be deemed to be an issuer of the portion of the Primary ABS that such Ten
Percent Obligor represents.
(2) Restricted Special Purpose Entities.
A Ten Percent Obligor with respect to
a Primary or Secondary ABS shall not
be deemed to have issued any portion
of the assets of a Primary ABS as provided in paragraph (c)(4)(ii)(D)(1) of
this section if that Ten Percent Obligor
is itself a Special Purpose Entity
issuing Asset Backed Securities (‘‘Restricted Special Purpose Entity’’), and
the securities that it issues (other than

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securities issued to a company that
controls, or is controlled by or under
common control with, the Restricted
Special Purpose Entity and which is
not itself a Special Purpose Entity
issuing Asset Backed Securities) are
held by only one other Special Purpose
Entity.
(3) Demand Features and Guarantees.
In the case of a Ten Percent Obligor
deemed to be an issuer, the fund shall
satisfy the diversification requirements of paragraph (c)(4)(iii) of this
section with respect to any Demand
Feature or Guarantee to which the Ten
Percent Obligor’s obligations are subject.
(E) Shares of Other Money Market
Funds. A money market fund that Acquires shares issued by another money
market fund in an amount that would
otherwise be prohibited by paragraph
(c)(4)(i) of this section shall nonetheless be deemed in compliance with this
section if the board of directors of the
Acquiring money market fund reasonably believes that the fund in which it
has invested is in compliance with this
section.
(iii) Diversification Rules for Demand
Features and Guarantees. The money
market fund shall be diversified with
respect to Demand Features and Guarantees Acquired by the fund as provided in paragraphs (c)(4)(iii) and
(c)(4)(iv) of this section, other than with
respect to a Demand Feature issued by
the same institution that issued the
underlying security, or with respect to
a Guarantee or Demand Feature that is
itself a Government Security.
(A) General. Immediately after the
Acquisition of any Demand Feature or
Guarantee or security subject to a Demand Feature or Guarantee, a money
market fund, with respect to seventyfive percent of its Total Assets, shall
not have invested more than ten percent of its Total Assets in securities
issued by or subject to Demand Features or Guarantees from the institution that issued the Demand Feature
or Guarantee, subject to paragraphs
(c)(4)(iii) (B) and (C) of this section.
(B) Second Tier Demand Features or
Guarantees. Immediately after the Acquisition of any Demand Feature or
Guarantee (or a security after giving
effect to the Demand Feature or Guar-

antee) that is a Second Tier Security, a
money market fund shall not have invested more than five percent of its
Total Assets in securities issued by or
subject to Demand Features or Guarantees from the institution that issued
the Demand Feature or Guarantee.
(C) Demand Features or Guarantees
Issued by Non-Controlled Persons. Immediately after the Acquisition of any security subject to a Demand Feature or
Guarantee, a money market fund shall
not have invested more than ten percent of its Total Assets in securities
issued by, or subject to Demand Features or Guarantees from the institution that issued the Demand Feature
or Guarantee, unless, with respect to
any security subject to Demand Features or Guarantees from that institution (other than securities issued by
such institution), the Demand Feature
or Guarantee is a Demand Feature or
Guarantee Issued By A Non-Controlled
Person.
(iv) Demand Feature and Guarantee
Diversification Calculations—(A) Fractional Demand Features or Guarantees.
In the case of a security subject to a
Demand Feature or Guarantee from an
institution by which the institution
guarantees a specified portion of the
value of the security, the institution
shall be deemed to guarantee the specified portion thereof.
(B) Layered Demand Features or Guarantees. In the case of a security subject
to Demand Features or Guarantees
from multiple institutions that have
not limited the extent of their obligations as described in paragraph
(c)(4)(iv)(A) of this section, each institution shall be deemed to have provided the Demand Feature or Guarantee with respect to the entire principal amount of the security.
(v) Diversification Safe Harbor. A
money market fund that satisfies the
applicable diversification requirements
of paragraphs (c)(4) and (c)(5) of this
section shall be deemed to have satisfied the diversification requirements of
section 5(b)(1) of the Act (15 U.S.C. 80a–
5(b)(1)) and the rules adopted thereunder.
(5) Demand Features and Guarantees
Not Relied Upon. If the fund’s board of
directors has determined that the fund
is not relying on a Demand Feature or

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Securities and Exchange Commission

§ 270.2a–7

Guarantee to determine the quality
(pursuant to paragraph (c)(3) of this
section), or maturity (pursuant to
paragraph (d) of this section), or liquidity of a portfolio security, and maintains a record of this determination
(pursuant to paragraphs (c)(9)(ii) and
(c)(10)(vi) of this section), then the
fund may disregard such Demand Feature or Guarantee for all purposes of
this section.
(6) Downgrades, Defaults and Other
Events—(i) Downgrades—(A) General.
Upon the occurrence of either of the
events
specified
in
paragraphs
(c)(6)(i)(A) (1) and (2) of this section
with respect to a portfolio security, the
board of directors of the money market
fund shall reassess promptly whether
such security continues to present
minimal credit risks and shall cause
the fund to take such action as the
board of directors determines is in the
best interests of the money market
fund and its shareholders:
(1) A portfolio security of a money
market fund ceases to be a First Tier
Security (either because it no longer
has the highest rating from the Requisite NRSROs or, in the case of an
Unrated Security, the board of directors of the money market fund determines that it is no longer of comparable quality to a First Tier Security); and
(2) The money market fund’s investment adviser (or any person to whom
the fund’s board of directors has delegated portfolio management responsibilities) becomes aware that any
Unrated Security or Second Tier Security held by the money market fund
has, since the security was Acquired by
the fund, been given a rating by any
NRSRO below the NRSRO’s second
highest short-term rating category.
(B) Securities To Be Disposed Of. The
reassessments required by paragraph
(c)(6)(i)(A) of this section shall not be
required if, in accordance with the procedures adopted by the board of directors, the security is disposed of (or matures) within five Business Days of the
specified event and, in the case of
events
specified
in
paragraph
(c)(6)(i)(A)(2) of this section, the board
is subsequently notified of the adviser’s
actions.

(C) Special Rule for Certain Securities
Subject to Demand Features. In the event
that after giving effect to a rating
downgrade, more than five percent of
the fund’s Total Assets are invested in
securities issued by or subject to Demand Features from a single institution that are Second Tier Securities,
the fund shall reduce its investment in
securities issued by or subject to Demand Features from that institution to
no more than five percent of its Total
Assets by exercising the Demand Features at the next succeeding exercise
date(s), absent a finding by the board
of directors that disposal of the portfolio security would not be in the best
interests of the money market fund.
(ii) Defaults and Other Events. Upon
the occurrence of any of the events
specified in paragraphs (c)(6)(ii)(A)
through (D) of this section with respect
to a portfolio security, the money market fund shall dispose of such security
as soon as practicable consistent with
achieving an orderly disposition of the
security, by sale, exercise of any Demand Feature or otherwise, absent a
finding by the board of directors that
disposal of the portfolio security would
not be in the best interests of the
money market fund (which determination may take into account, among
other factors, market conditions that
could affect the orderly disposition of
the portfolio security):
(A) The default with respect to a
portfolio security (other than an immaterial default unrelated to the financial condition of the issuer);
(B) A portfolio security ceases to be
an Eligible Security;
(C) A portfolio security has been determined to no longer present minimal
credit risks; or
(D) An Event of Insolvency occurs
with respect to the issuer of a portfolio
security or the provider of any Demand
Feature or Guarantee.
(iii) Notice to the Commission. In the
event of a default with respect to one
or more portfolio securities (other than
an immaterial default unrelated to the
financial condition of the issuer) or an
Event of Insolvency with respect to the
issuer of the security or any Demand
Feature or Guarantee to which it is
subject, where immediately before default the securities (or the securities

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§ 270.2a–7

17 CFR Ch. II (4–1–07 Edition)

subject to the Demand Feature or
Guarantee) accounted for 1⁄2 of 1 percent or more of a money market fund’s
Total Assets, the money market fund
shall promptly notify the Commission
of such fact and the actions the money
market fund intends to take in response to such situation. Notification
under this paragraph shall be made
telephonically, or by means of a facsimile transmission or electronic mail,
followed by letter sent by first class
mail, directed to the attention of the
Director of the Division of Investment
Management.
(iv) Defaults for Purposes of Paragraphs (c)(6) (ii) and (iii). For purposes
of paragraphs (c)(6) (ii) and (iii) of this
section, an instrument subject to a Demand Feature or Guarantee shall not
be deemed to be in default (and an
Event of Insolvency with respect to the
security shall not be deemed to have
occurred) if:
(A) In the case of an instrument subject to a Demand Feature, the Demand
Feature has been exercised and the
fund has recovered either the principal
amount or the amortized cost of the instrument, plus accrued interest; or
(B) The provider of the Guarantee is
continuing, without protest, to make
payments as due on the instrument.
(7) Required Procedures: Amortized Cost
Method. In the case of a money market
fund using the Amortized Cost Method:
(i) General. In supervising the money
market fund’s operations and delegating special responsibilities involving portfolio management to the
money market fund’s investment adviser, the money market fund’s board
of directors, as a particular responsibility within the overall duty of care
owed to its shareholders, shall establish written procedures reasonably designed, taking into account current
market conditions and the money market fund’s investment objectives, to
stabilize the money market fund’s net
asset value per share, as computed for
the purpose of distribution, redemption
and repurchase, at a single value.
(ii) Specific Procedures. Included within the procedures adopted by the board
of directors shall be the following:
(A) Shadow Pricing. Written procedures shall provide:

(1) That the extent of deviation, if
any, of the current net asset value per
share calculated using available market quotations (or an appropriate substitute that reflects current market
conditions) from the money market
fund’s amortized cost price per share,
shall be calculated at such intervals as
the board of directors determines appropriate and reasonable in light of
current market conditions;
(2) For the periodic review by the
board of directors of the amount of the
deviation as well as the methods used
to calculate the deviation; and
(3) For the maintenance of records of
the determination of deviation and the
board’s review thereof.
(B) Prompt Consideration of Deviation.
In the event such deviation from the
money market fund’s amortized cost
price per share exceeds 1⁄2 of 1 percent,
the board of directors shall promptly
consider what action, if any, should be
initiated by the board of directors.
(C) Material Dilution or Unfair Results.
Where the board of directors believes
the extent of any deviation from the
money market fund’s amortized cost
price per share may result in material
dilution or other unfair results to investors or existing shareholders, it
shall cause the fund to take such action as it deems appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results.
(8) Required Procedures: Penny-Rounding Method. In the case of a money
market fund using the Penny-Rounding
Method, in supervising the money market fund’s operations and delegating
special responsibilities involving portfolio management to the money market fund’s investment adviser, the
money market fund’s board of directors
undertakes, as a particular responsibility within the overall duty of care
owed to its shareholders, to assure to
the extent reasonably practicable, taking into account current market conditions affecting the money market
fund’s investment objectives, that the
money market fund’s price per share as
computed for the purpose of distribution, redemption and repurchase,
rounded to the nearest one percent,
will not deviate from the single price
established by the board of directors.

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Securities and Exchange Commission

§ 270.2a–7

(9) Specific Procedures: Amortized Cost
and Penny-Rounding Methods. Included
within the procedures adopted by the
board of directors for money market
funds using either the Amortized Cost
or Penny-Rounding Methods shall be
the following:
(i) Securities for Which Maturity is Determined by Reference to Demand Features. In the case of a security for
which maturity is determined by reference to a Demand Feature, written
procedures shall require ongoing review of the security’s continued minimal credit risks, and that review must
be based on, among other things, financial data for the most recent fiscal
year of the issuer of the Demand Feature and, in the case of a security subject to a Conditional Demand Feature,
the issuer of the security whose financial condition must be monitored under
paragraph (c)(3)(iv) of this section,
whether such data is publicly available
or provided under the terms of the security’s governing documentation.
(ii) Securities Subject to Demand Features or Guarantees. In the case of a security subject to one or more Demand
Features or Guarantees that the fund’s
board of directors has determined that
the fund is not relying on to determine
the quality (pursuant to paragraph
(c)(3) of this section), maturity (pursuant to paragraph (d) of this section) or
liquidity of the security subject to the
Demand Feature or Guarantee, written
procedures shall require periodic evaluation of such determination.
(iii) Adjustable Rate Securities Without
Demand Features. In the case of a Variable Rate or Floating Rate Security
that is not subject to a Demand Feature and for which maturity is determined pursuant to paragraphs (d)(1),
(d)(2) or (d)(4) of this section, written
procedures shall require periodic review of whether the interest rate formula, upon readjustment of its interest
rate, can reasonably be expected to
cause the security to have a market
value that approximates its amortized
cost value.
(iv) Asset Backed Securities. In the
case of an Asset Backed Security, written procedures shall require the fund to
periodically determine the number of
Ten Percent Obligors (as that term is
used in paragraph (c)(4)(ii)(D) of this

section) deemed to be the issuers of all
or a portion of the Asset Backed Security
for
purposes
of
paragraph
(c)(4)(ii)(D) of this section; Provided,
however, written procedures need not
require periodic determinations with
respect to any Asset Backed Security
that a fund’s board of directors has determined, at the time of Acquisition,
will not have, or is unlikely to have,
Ten Percent Obligors that are deemed
to be issuers of all or a portion of that
Asset Backed Security for purposes of
paragraph (c)(4)(ii)(D) of this section,
and maintains a record of this determination.
(10) Record Keeping and Reporting—(i)
Written Procedures. For a period of not
less than six years following the replacement of such procedures with new
procedures (the first two years in an
easily accessible place), a written copy
of the procedures (and any modifications thereto) described in paragraphs
(c)(6) through (c)(9) and (e) of this section shall be maintained and preserved.
(ii) Board Considerations and Actions.
For a period of not less than six years
(the first two years in an easily accessible place) a written record shall be
maintained and preserved of the board
of directors’ considerations and actions
taken in connection with the discharge
of its responsibilities, as set forth in
this section, to be included in the minutes of the board of directors’ meetings.
(iii) Credit Risk Analysis. For a period
of not less than three years from the
date that the credit risks of a portfolio
security were most recently reviewed,
a written record of the determination
that a portfolio security presents minimal credit risks and the NRSRO ratings (if any) used to determine the status of the security as an Eligible Security, First Tier Security or Second Tier
Security shall be maintained and preserved in an easily accessible place.
(iv) Determinations With Respect to Adjustable Rate Securities. For a period of
not less than three years from the date
when the determination was most recently made, a written record shall be
preserved and maintained, in an easily
accessible place, of the determination
required by paragraph (c)(9)(iii) of this
section (that a Variable Rate or Floating Rate Security that is not subject to

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§ 270.2a–7

17 CFR Ch. II (4–1–07 Edition)

a Demand Feature and for which maturity is determined pursuant to paragraphs (d)(1), (d)(2) or (d)(4) of this section can reasonably be expected, upon
readjustment of its interest rate at all
times during the life of the instrument,
to have a market value that approximates its amortized cost).
(v) Determinations with Respect to
Asset Backed Securities. For a period of
not less than three years from the date
when the determination was most recently made, a written record shall be
preserved and maintained, in an easily
accessible place, of the determinations
required by paragraph (c)(9)(iv) of this
section (the number of Ten Percent Obligors (as that term is used in paragraph (c)(4)(ii)(D) of this section)
deemed to be the issuers of all or a portion of the Asset Backed Security for
purposes of paragraph (c)(4)(ii)(D) of
this section). The written record shall
include:
(A) The identities of the Ten Percent
Obligors (as that term is used in paragraph (c)(4)(ii)(D) of this section), the
percentage of the Qualifying Assets
constituted by the securities of each
Ten Percent Obligor and the percentage of the fund’s Total Assets that are
invested in securities of each Ten Percent Obligor; and
(B) Any determination that an Asset
Backed Security will not have, or is
unlikely to have, Ten Percent Obligors
deemed to be issuers of all or a portion
of that Asset Backed Security for purposes of paragraph (c)(4)(ii)(D) of this
section.
(vi) Evaluations with Respect to Securities Subject to Demand Features or Guarantees. For a period of not less than
three years from the date when the
evaluation was most recently made, a
written record shall be preserved and
maintained, in an easily accessible
place, of the evaluation required by
paragraph (c)(9)(ii) (regarding securities subject to one or more Demand
Features or Guarantees) of this section.
(vii) Inspection of Records. The documents preserved pursuant to this paragraph (c)(10) shall be subject to inspection by the Commission in accordance
with section 31(b) of the Act (15 U.S.C.
80a–30(b)) as if such documents were
records required to be maintained pur-

suant to rules adopted under section
31(a) of the Act (15 U.S.C. 80a–30(a)). If
any action was taken under paragraphs
(c)(6)(ii) (with respect to defaulted securities and events of insolvency) or
(c)(7)(ii) (with respect to a deviation
from the fund’s share price of more
than 1/2 of 1 percent) of this section,
the money market fund will file an exhibit to the Form N-SAR (17 CFR
274.101) filed for the period in which the
action was taken describing with specificity the nature and circumstances of
such action. The money market fund
will report in an exhibit to such Form
any securities it holds on the final day
of the reporting period that are not Eligible Securities.
(d) Maturity of Portfolio Securities. For
purposes of this section, the maturity
of a portfolio security shall be deemed
to be the period remaining (calculated
from the trade date or such other date
on which the fund’s interest in the security is subject to market action)
until the date on which, in accordance
with the terms of the security, the
principal amount must unconditionally
be paid, or in the case of a security
called for redemption, the date on
which the redemption payment must
be made, except as provided in paragraphs (d)(1) through (d)(8) of this section:
(1) Adjustable Rate Government Securities. A Government Security that is a
Variable Rate Security where the variable rate of interest is readjusted no
less frequently than every 762 calendar
days shall be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate. A Government Security
that is a Floating Rate Security shall
be deemed to have a remaining maturity of one day.
(2) Short-Term Variable Rate Securities.
A Variable Rate Security, the principal
amount of which, in accordance with
the terms of the security, must unconditionally be paid in 397 calendar days
or less shall be deemed to have a maturity equal to the earlier of the period
remaining until the next readjustment
of the interest rate or the period remaining until the principal amount
can be recovered through demand.
(3) Long-Term Variable Rate Securities.
A Variable Rate Security, the principal

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Securities and Exchange Commission

§ 270.2a19–2

amount of which is scheduled to be
paid in more than 397 calendar days,
that is subject to a Demand Feature,
shall be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of
the interest rate or the period remaining until the principal amount can be
recovered through demand.
(4) Short-Term Floating Rate Securities.
A Floating Rate Security, the principal
amount of which, in accordance with
the terms of the security, must unconditionally be paid in 397 calendar days
or less shall be deemed to have a maturity of one day.
(5) Long-Term Floating Rate Securities.
A Floating Rate Security, the principal
amount of which is scheduled to be
paid in more than 397 calendar days,
that is subject to a Demand Feature,
shall be deemed to have a maturity
equal to the period remaining until the
principal amount can be recovered
through demand.
(6) Repurchase Agreements. A repurchase agreement shall be deemed to
have a maturity equal to the period remaining until the date on which the repurchase of the underlying securities is
scheduled to occur, or, where the
agreement is subject to demand, the
notice period applicable to a demand
for the repurchase of the securities.
(7) Portfolio Lending Agreements. A
portfolio lending agreement shall be
treated as having a maturity equal to
the period remaining until the date on
which the loaned securities are scheduled to be returned, or where the agreement is subject to demand, the notice
period applicable to a demand for the
return of the loaned securities.
(8) Money Market Fund Securities. An
investment in a money market fund
shall be treated as having a maturity
equal to the period of time within
which the Acquired money market
fund is required to make payment upon
redemption, unless the Acquired money
market fund has agreed in writing to
provide redemption proceeds to the investing money market fund within a
shorter time period, in which case the
maturity of such investment shall be
deemed to be the shorter period.
(e) Delegation. The money market
fund’s board of directors may delegate
to the fund’s investment adviser or of-

ficers the responsibility to make any
determination required to be made by
the board of directors under this section (other than the determinations required by paragraphs (c)(1) (board findings); (c)(6)(i)(C) (rule for certain securities subject to second tier Demand
Features); (c)(6)(ii) (defaults and other
events); (c)(7)(i) (general required procedures: Amortized Cost Method);
(c)(7)(ii)(A)
(shadow
pricing),
(B)
(prompt consideration of deviation),
and (C) (material dilution or unfair results); and (c)(8) (required procedures:
Penny Rounding Method) of this section) provided:
(1) Written Guidelines. The Board shall
establish and periodically review written guidelines (including guidelines for
determining whether securities present
minimal credit risks as required in
paragraph (c)(3) of this section) and
procedures under which the delegate
makes such determinations:
(2) Oversight. The Board shall take
any measures reasonably necessary
(through periodic reviews of fund investments and the delegate’s procedures in connection with investment
decisions and prompt review of the adviser’s actions in the event of the default of a security or Event of Insolvency with respect to the issuer of the
security or any Guarantee to which it
is subject that requires notification of
the Commission under paragraph
(c)(6)(iii) of this section) to assure that
the guidelines and procedures are being
followed.
[62 FR 64978, Dec. 9, 1997, as amended at 66
FR 36161, July 11, 2001]

§ 270.2a19–2 Investment company general partners not deemed interested
persons.
PRELIMINARY NOTE TO § 270.2a19–2: This
§ 270.2a19–2 conditionally excepts from the
definition of interested person in section
2(a)(19) (15 U.S.C. 80a–2(a)(19)) general partners of investment companies organized in
limited partnership form. Compliance with
the conditions of this § 270.2a19–2 does not relieve an investment company of any other
requirement of this Act, or except a general
partner that is an interested person by virtue of any other provision.

(a) Director General Partners Not
Deemed Interested Persons. A general
partner serving as a director of a limited partnership investment company

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